In 2021, everything falls apart for Wicked. They have a loss of $1,150,000 when they look at everything it is the same on the tax return and the income statement. They sold the municipal bonds to raise cash and cancelled the insurance policy on the CEO to save money (so no permanent differences in 2021). At the end of 2021, Wicked estimated its allowance for bad debts to be 5.5% of its accounts receivable of $518,000. Wicked had write offs in 2021 of $41,630. They did not receive any rent for 2022 and did not purchase any additional assets (but continue to depreciate the assets from 2018 and 2019).

Required:

Calculate the net operating loss

Give the journal entries needed if Wicked elects the carry back provision of the tax law

Classify deferred taxes as current or long term

Show calculation of net loss

Describe how the need for and the amount of a valuation allowance would be determined for Wicked.

Answer rating: 100% (QA)

1 Calculation of net operating loss NOL Taxable income 0 Allowance for bad debts 55 x 518000 41630 Allowance for bad debts 28490 NOL Taxable income Al... View the full answer